Can a contractor hold out 15% of a subcontractors total earnings if they don't provide workers comp. insurance

Question

If you pay a subcontractor 100,000 for a job and they can't provide you workers comp insurance can you withhold 15k out of there final check to cover what your insurance is going to hit you with when you get audited? This is for construction in the apartment industry

I'm a contractor and I'm afraid I will get audited and have to pay 15-20K because my sub doesn't have workers comp. Is this legal to do this?

Answer 1

If you did not have this as a requirement in the contract, I would be very leery about doing this. If the subcontractor does not get paid, he or she can go out and slap a mechanics lien on the property and you will end up having to pay him to get him to release it and looking really bad to your client (the owner of the property).

I have seen contractors do this all the time but the reality is that you should 1) have it spelled out as a requirement in the contract and 2) you should not let the subcontractor onto the job site until he provides you with the Certificate of Insurance (IMHO for at least 4 policies--commercial general liability, workers compensation, commercial auto, and excess liability) and further the Certificate should name you as additional insured.

Would you like it if a contractor did this to you? Also if your sub were to have a claim whether it is under workers compensation or liability and he is uninsured your policy will kick in but it affects you in terms of your ability to maintain a favorable loss history with your insurance company and being able to keep your premiums low. FYI even if your insurance company pays they can still go after your sub for reimbursement.

If you still want to do this get the advice of an attorney who specializes in construction, contract and or business law.

Good luck.

Answer 2

I'm not a lawyer, I'm just an insurance agent. What *I* have seen, is the sub doesn't get paid AT ALL until they have given the certificate of insurance with GL and Comp to the General. Part of the subcontracting agreement is that the sub carries these coverages, and it's in writing before the job begins.

If you don't have the agreement in advance, I have no idea what the law says, but you're right, you'll be hit with 15% at audit if you're lucky, depending on the class rate.

I think you'll have to look at the work agreement to see what it says - and for sure, if it doesn't say that they get paid after the job is done and after you have your certs, you need to change the wording to specify that.

**btw, the sub signing the waiver and not carrying wc will NOT get you off the hook for the audit, because if they get killed on YOUR job site, you're still on the hook for benefits to widow & dependents. You can't sign away the WC rights, in ANY of the 50 states.**

Answer 3

Done all the time.
In some states, TX., for one, the sub can sign a waiver and have no Workmans Comp coverage.
Can't be done retroactive.

Answer 4

The certificates being presented might no longer meet the standards of the contract. you actual might desire to communicate with them to confirm why they are withholding this funds and no remember if or no longer the certificates meets the standards of the contract. i will speculate as to why they are no longer accepting it, yet there are various potential possibilities. talk with your assurance agent, they may be waiting to grant you some preparation. just to allow you be attentive to, if the contract demands that your husband supply assurance, and he fails to offer sufficient assurance, they might withhold those money from his reimbursement.